March 10, 2008... Finding the magic in "Magic Jack" and other cheap VOIP carriers.

If your objective is saving money on voice calls to and from "landlines" and mobile phones, then you probably have dozens if not hundreds of choices. Anywhere in the world where broadband Internet exists, telephone replacement devices and services have been springing up quickly. If you are willing to shop around, willing to take risks, and are satisfied with just voice communication, then you will probably end up as one of their customers.

At one point Vonage was the leader in this market. Together with Comcast, Time Warner, AT&T, and other "digital phone" services, they represent one segment of the market that today is at the high end of the price spectrum; $300-$500 per year for flat-rate domestic calling together with a "phone number" for inbound calls. The examples I offer are for the USA but there's a similar situation in many countries.

At the opposite end of the price spectrum you find dozens of competitors that will rent you a phone number and allow you to call domestically for as low as $20 per year. As the anti-Skype crowd screams again and again, Skype is NOT the cheapest, costing around $60 per year. Depending on your perspective, the difference annually can seem like a very small $40 or a very large 300%. The choice is often complicated, so hopefully the following explanation will help.

Here's a summary of one of the latest of the new and very clever VOIP services, Magic Jack. It is a tempting offer because Magic Jack bursts onto the scene with a simple and easily understandable device that seems to instantly gratify the desires of someone looking for a cheap telephone replacement. It gives you a "jack" into which you plug a regular RJ11 telephone, and then you plug that right into your computer's USB slot. What could be simpler!! As for pricing, Magic Jack's international rates are very close to Skype's... some are higher and some are lower. But it's the pricing for the basic package that makes it so interesting... $40 for the jack and $20 per year.

So what's the problem? First, Magic Jack is a brand new service and it is highly likely that the $20/year fee is just a teaser rate. Remember that Skype "unlimited" had a cost of $0. for all of 2006. Same situation here; Magic Jack intends, I think, to build up its user base with a dramatically favorable price comparison, and hope that the customer base is large enough to sustain it after investors' money runs out and it has to survive on on its own. Magic Jack looks good but a year from now you may or may not be left with a "jack" that you have to throw away.

More importantly, Magic Jack shares with most or all of the newcomer competition the problem that its feature set is voice only. So when it comes to Skype, comparison is more complex. Their feature sets (Magic Jack vs. Skype) are not comparable in several ways. You could say that they are only as comparable as apples and oranges. Magic Jack is just a telephone replacement whereas Skype is an integrated communications system. Missing features in Magic Jack:

• SMB
• Video calling
• Instant messaging
• File Transfer
• Encryption
• Multiple login
• Conferencing (voice and video)
• Mac OSX and Linux compatibility
• Cleverness getting through firewalls
• Availability for smart phones and mobile WIFI devices
• Basic service (without a phone number) for free

No, Magic Jack is not a Skype killer any more than the other cheap VOIP services. It may well kill Vonage, Comcast and Time Warner because of its pricing, but because Magic Jack's infrastructure requirements are not unlike these other VOIP carriers, its pricing will ultimately rise to their level, or their pricing will fall to the level of Magic Jack's. Price is the only thing that allows these competitors to distinguish themselves from each other. Skype on the other hand is far more than just a VOIP company, and it can distinguish itself on a far greater set of features than just its pricing for voice calls.

Do I hate Magic Jack? No, absolutely not. In fact, I like several things about it. Skype might want to imitate it in these areas:

• Use introductory pricing that is discounted from the regular price (SkypePro and SkypeIN).
• Build a USB/RJ11 device that has Skype pre-installed for people who want to use Skype only for voice calling.
• Allow customers to register their home address, and thereby enable 911 service
• Have a customer support department